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February 19, 2014
Divest or Engage Meets the Capital Markets
    by Robert Kropp

Investors aligned with Ceres with Ceres file ten resolutions addressing stranded fossil fuel assets, and Green Century Capital Management announces its Equity Fund will become fossil free.


Stranded assets, which refer to the fossil fuel reserves that will have to stay in the ground if global temperature increases are to be limited to two degree Celsius, form the basis for the divestment movement on college campuses, where students are pressuring their colleges and universities to divest their holdings in fossil fuel companies.

Many sustainable institutional investors prefer engagement to divestment, and choose corporate dialogue and the filing of shareowner resolutions over emptying their portfolios of fossil fuel companies. During the 2013 proxy season, resolutions addressing stranded assets were filed with two of the nation's largest coal companies. In November, 70 global investors, which collectively manage more than $3 trillion in assets, wrote to 45 of the largest fossil fuel companies in the US, requesting that they report on the exposure to and management of risks associated with stranded assets. The investors specifically requested that the companies respond in advance of the 2014 proxy season.

It was recently reported in SocialFunds.com that members of the Interfaith Center on Corporate Responsibility (ICCR) filed resolutions addressing stranded assets. “Investors are concerned that actions to significantly reduce GHG (greenhouse gas) emissions could reduce the value of Chevron’s oil and gas reserves and/or related infrastructure before the end of their expected useful life,” one such resolution states.

Ceres, which organized last year's investor letter to fossil fuel companies, announced last week that six institutional investors have filed resolutions addressing stranded assets with 10 fossil fuel companies. The companies targeted by the resolutions include ExxonMobil, Chevron, Southern Company, Hess, Anadarko, Devon, Kinder Morgan, Peabody Energy, FirstEnergy and CONSOL Energy.

“Climate-related trends such as carbon-reducing regulations and clean energy growth are a real threat to fossil fuel companies’ future profitability, but most firms have relegated it to the ‘someday’ pile when it comes to corporate priorities,” Ceres president Mindy Lubber said. “

“The likelihood that fossil fuel companies will experience a significant threat to their valuation grows each year,” said Danielle Fugere, President of As You Sow. “These companies are producing the vast majority of climate-changing emissions and now is the time for them to reduce risk. If they are not preparing to survive in a carbon-constrained future, we expect shareholders will sit up and take notice.”

But sustainable investors have come down on both sides of the divest or engage debate. Green Century Capital Management, whose Balanced Fund has been fossil fuel free for many years, announced last week that as of April 1st its Equity Fund will become fossil fuel free as well. Green Century's family of funds has not invested in oil or coal companies since 2005, and now gas companies will be divested as well.

“As Green Century uncovered and examined the reputational risks and potential investment risks of hydraulic fracturing (fracking) over the last five years, our analysis of the companies engaged in this controversial and environmentally damaging practice has changed,” the firm stated. “We no longer believe gas companies can be a viable investment for an environmentally responsible mutual fund.”

“Growing numbers of people want to avoid supporting the industries that are most responsible for the climate changes that are contributing to the dire drought in California and the devastating snowstorms in the South,” said Leslie Samuelrich, President of Green Century. “Since fossil fuel corporations are determined to burn their carbon reserves, which are five times the amount that scientists say our planet can safely absorb, there is a growing concern that investors may face a carbon bubble if carbon restrictions are put into place. With so many unknowns in the future, why not avoid the widely reported possible risk of stranded assets?”

 

 
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